The Great Indian Delivery War
Food delivery is up for yet another disruption. No, not from Amazon, this time the challengers have a different business model altogether.
Food delivery in India has become synonymous with Zomato and Swiggy. And with the infamous Zomato IPO flexing its appeal and popularity, it looks like the $4 Bn Indian food tech industry is all set for a revolutionary future.
Despite this, the National Restaurant Association of India (NRAI) has approached the Competition Commission of India (CCI) against these messiahs of hunger. In fact, there is emerging a new category of food tech player. Even Swiggy is joining the new race and sabotaging its core-offering. Why? And how did we come to all this?
An Ongoing Brawl
Well, this isn't the first time the NRAI has gotten into a tussle with these food tech giants. Way back in 2019, NRAI shared an article, warning customers that Zomato and Swiggy are charging higher than the actual prices. The article was even supplemented with screenshots from the Zomato app, comparing prices of food items as per restaurant menu with those charged by Zomato. You won’t believe this, but the prices were inflated by about 15-35%!
Not much later, we found the NRAI spearheading the #logout campaign. Restaurants from across India joined in to protest the deep discounting strategies adopted by food tech aggregators.
You see, the online ordering space is driven by aggressive marketing strategies and discounts. And, who has to take the bullet?
The restaurants. They had to absorb the discounts, but their pockets were already burnt from paying commissions for every order (upto 25% of the order value)! They were suffering through and through.
To make matters even worse, with the onset of membership programs such as Zomato Gold, partner restaurants were forced to abide by "Buy One, Get One" offers. Such offers on both dine-in and takeaway meals definitely increased the footfall. But, profits were drying.
There had never been a better time for the consumers, and never a worse time for the restaurants.
Now, one restaurant alone could not bring a change. The #logout campaign, which drew participation from 1800+ NRAI member restaurants, was a success and saw Dineout and Magicpin dilute their discounting schemes while Zomato revamped its Gold program.
Aggregators Relatively Unscathed
Although the #logout campaign was quite a big deal, food tech aggregators didn't have to break much sweat. In their defense, enrolling into deep discounting programs or membership programs was a choice for the restaurants to make.
Haah, choice. Really?
In fact, throughout the period of the campaign, Zomato witnessed a 200-strong increase in partner restaurants, up to a whopping count of 6300! And six months down the #logout campaign route, its impact had pretty much waned and the all-powerful aggregators moved on.
Come 2020 (pre-pandemic), and we witnessed yet another development. Swiggy and Zomato increased their delivery charges, tightened cancellation policies, brought in dynamic pricing (based on traffic conditions, order quantity, meal hours etc.) and increased prices of their loyalty programs (Swiggy Super and Zomato Pro). This led to a fall in orders and it seemed like customers might finally ditch these apps for good. Until...
The WHO declared a global pandemic.
The Pandemic Era
Come mid-to-late 2020 and the world, as we knew it, turned all topsy turvy. By October 2020, Zomato and Swiggy said that their order levels had gone up to pre-pandemic levels and were on the rise. Zomato was doing so good that they even took away commission charges on takeaway orders (Nov'20).
Now, even the luxury fine dining restaurants, whose key offering is experience (and had stayed away from this space), started listing themselves on these platforms for the sake of survival and profits. Sure, the commissions of the aggregators are high, but these restaurants have the advantage of experience and money.
They are creating their own delivery systems. ITC has partnered with these players, but also has its own app. 40% of Marriott’s online orders come from its own website. The success of this model has opened new avenues for the luxury restaurants. One, that is not completely reliant on Zomato and Swiggy.
But, what about restaurants who are going out of business day by day? And, what about those that remain barely standing and can no longer muster up even close to pre-pandemic footfalls?
The earlier bone of contention between the restaurants and aggregators continued to make things sticky.
Restaurants now needed food delivery more than ever. But being unable to enrol into the aggregators’ deep discounting schemes, restaurants could no longer benefit from appearing on top of their search results, which in turn affected their visibility. Those who attempted to foray into web platforms of their own, were faced with the problem of having access to little or no data that would enable them to make customer targeting decisions. Why?
Because the aggregators had long stopped sharing data with restaurants, citing ‘privacy concerns’.
Besides, why would customers order from a newly built restaurant webpage? Ordering from Zomato and Swiggy was easy-peasy. Plus, you can find so many other options there. Thinking of a dish, zeroing down on a restaurant and then going to its website? Naah, too much effort!
After over 18 months into this long drawn scuffle, the NRAI decided they've had enough.
Their concerns aren't difficult to comprehend, considering that these platforms own troves of customer data (from timings to prices to location preferences, everything) which they're using for fine-tuning their own private labels and cloud kitchens (If you are staying in a city like Bangalore, chances are that you or your friends survive on The Bowl Company, Swiggy’s flagship private brand).
This is why they've approached the competition regulators alleging violation of competition norms by these platforms.
What Now?
After years of mistreatment, it seems like restaurants have finally found their knight(s) in shining armor. Restaurants have started experimenting with direct ordering services that enable them to break out of aggregators' grips.
Platforms such as DotPe, Thrive and Peppo, provide a platform for restaurants to set up their own web pages and allow data sharing. What's better, they're significantly cheaper (just 1-3% cut) and have unbundled offers (allowing restaurants to finally have à la carte offerings to choose from. Now they can pick from services for getting a digital menu done, enabling payments, marketing services, data sharing etc.).
Even NRAI gives them its blessings and has announced plans of building its own food ordering and delivery services platform.
DotPe alone has helped restaurants generate over 10 million orders and deliveries since inception. Restaurants can finally benefit from customer data as well as marketing assistance provided by these platforms. As appealing as all this may seem, would customers actually go the length of visiting different restaurant platforms and figuring out how to order from them? Can restaurants really bid goodbye to Zomato and Swiggy forever? Or are they too big to fail?
The Hereafter of Tech Aggregators
DotPe, Thrive and Peppo don't spend on customer acquisition. Then how on Earth would restaurants then remain profitable? Is it actually worth the foregone commissions? Looks like success is only possible if the majority of the restaurants opt out from Zomato and Swiggy and adopt DotPe. Sounds too ambitious?
Well, well. Not wishing to cough up market share, Swiggy has jumped on the #orderdirect bandwagon and is piloting a direct order platform with Mumbai restaurants. Swiggy Direct, besides offering special commission rates and a promise of data sharing for restaurants, also allows customers to enjoy a transparent delivery fee system.
While we're yet to find out what the future holds (dependent largely on the CCI's stance), it might be worthwhile to consider what's happening with the mature tech aggregators in other spaces.
Amazon faced similar allegations in the past, where it scooped up seller data to launch its own products. Netflix also faced its fair share of backlash when it started commissioning their own shows. Inevitably, in these two cases, it seems as if the aggregators are here to stay.
The food tech space is getting masaledaar by the day! What’s your take on this?
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